Russia cuts gas supply to Ukraine

Kiev: Russia cut off gas to Ukraine on Monday in a dispute over unpaid bills that could disrupt supplies to the rest of Europe and set back hopes for peace between the former Soviet neighbours.

After the weekend loss of 49 troops when pro-Russian rebels shot down a military transport plane, Ukraine's new president ordered his forces to retake full control of their border with Russia - saying this could then pave the way for negotiations.

Calling time on weeks of wrangling in talks over natural gas supplies, Russia said Kiev had missed a Monday morning deadline to repay $US1.95 billion owed for previous purchases and announced Ukraine would now only get gas it has paid for in advance.

No deal: A Ukrainian worker operates a valve in a gas storage point in Strij, outside Lviv, Ukraine. Photo: AP

At the same time, Moscow insisted that Ukraine must let Russian gas flow across the country through international pipelines to Russia's clients in the European Union - noting a temptation for Kiev to tap into those supplies in transit.

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Kiev and Moscow blamed each other for the failure to agree on the price of future gas deliveries and refused to abandon well established positions: Russia offering a discount and Ukraine rejecting that as a tool for political manipulation.

The talks are bound up with the worst crisis between Russia and Ukraine since the Soviet Union collapsed - a crisis that has brought Western sanctions on Moscow, the Russian annexation of Crimea and Cold War-style sabre-rattling along the borders.

Western-backed Ukrainian President Petro Poroshenko, elected last month to replace the Kremlin-friendly leader ousted in February, said on Monday he wanted troops to regain full control of the border with Russia this week. After that, there could be a ceasefire and efforts to come up with a peace plan.

"The ceasefire will be declared as soon as the border is secure," Mr Poroshenko told his security chiefs. "Declaring a ceasefire while the border is open would be irresponsible."

His remarks underlined his concern that Russia is supporting the rebels by sending in tanks, guns and men. Hopes of a lowering of tension had already been dented before the gas talks failed by the downing of the plane near the eastern frontier, an attack on Russia's embassy in Kiev and new accusations from NATO that Russia is arming the Ukrainian rebels.

All that sent Russian financial markets lower on Monday and helped oil and gas prices climb in Europe that were already firm on fears of supply disruption due to violence in Iraq.

"Thanks to the unconstructive position of the Ukrainian government, today a prepayment system was introduced," Alexei Miller, the chief executive of Russian state exporter Gazprom , told Prime Minister Dmitry Medvedev during a meeting at a government residence at Gorki, outside Moscow.

He said Ukraine had "adopted a position that can only be called blackmail", adding: "They wanted an ultra-low price."

At a news conference, he said it would no longer be enough for Kiev to pay part of its debt for supply to resume. That would now happen only once Ukraine paid off all the almost $US4.5 billion and paid up-front for a month's deliveries, he said.